Abstract

J. Basic. Appl. Sci. Res., 1(9)1250-1254, 2011 © 2011, TextRoad Publication

ISSN 2090-424X Journal of Basic and Applied Scientific Research www.textroad.com

Effect of Good Corporate Governance to Social Responsibility at Finance, Trade, Services and Investiment Registered at at Stock Exchange in Indonesia Dian Agustia

Faculty of Economy and Business, University of Airlangga, Surabaya, Indonesia ABSTRACT This paper studied the effect of good corporate governance to social responsibility. Variables used in this study were included number of the Board of Commissioners, Public Ownership Proportion, and Managerial Ownership Proportion. Endogenous variables were disclosures Corporate Social Responsibility (CSR) and Markets Reactions. Analysis used regression analysis and to know the direct and indirect effects using path analysis with the software SPSS for windows release 15.0 for Windows Result of this research showed that the number of the Board of Commissioners, the proportion of public ownership and the proportion of managerial ownership influence simultaneously on disclosure of CSR and Market Reaction. KEY WORDS: Board of Commissioners, public ownership, Managerial Ownership, Social Responsibility, Market Reaction. INTRODUCTION Coorporate Social Responsibility of a company was an important thing to ensure the survival the company itself. Implementation of Coorporate Social Responsibility seemed to be a rational consequence of practical implementation of Good Coorporate Governance (GOC). Principally, the company said that it would need to consider the interests of stakeholders related to existing regulations and established cooperation with stakeholders for the long term survival of the company itself. The characteristics of GCG were included numbers of Commissioners Boards, proportion of public ownership and proportion of managerial ownership. These characteristics would influence the appreciation of stakeholders for managerial and decision of investation as well. Global survey carried out by The Economist Intelligece Unit showed that 85% of senior executive and investor from some organizations located CSR as the main consideration in making decision [1]. By applying CSR, it was hoped that a company would get social legitimation and maximize finance power in long term so that would influence the value of share selling. CSR was the commitment of company to carry out practical opened and transparanced business due to the value of etika, to be integrated with environment, to pay attention to employers, local community, and social environment. Nowadays, practice of CSR had not been as general attitude. Application of CSR in Indonesia’s company was so minimized. Chambers et al [2] research in 7 countries (India, South Korea, Thailand, Singapura, Malaysia, Philipine, and Indonesia) at 50 companies showed that Indonesia was the lowest ranking in carrying out CSR and community participation. MATERIAL AND METHOD The samples used in this research were 41 companies of Finance, Trade, Services, and Investment which was registered at Jakarta Stock Excgange in the year of 2007 and 2008. This research was supported by annual report and the volume of daily share selling. This study used regression analysis and to know the direct and indirect effects using path analysis with the software SPSS for windows release 15.0 for Windows. Exogenous variables used in this study were number of the Board of Commissioners, Public Ownership Proportion, Proportion of Managerial Ownership. Endogenous variables were disclosures Corporate Social Responsibility and Markets Reactions. Analysis was included validity and reliability test, coefficient of correlation and determinination test, and regression analysis. The whole model developed in this research was as Figure 1 below. Sample used in this study was described as Table 1 below.

*Corresponding Author: Dian Agustia, Faculty of Economy and Business, University of Airlangga, Surabaya, Indonesia. Email : [email protected]

1250

Agustia, 2011

Number of the Board of Commisioner Public Ownership Proportion

H1 H1.1

Implementation of CSR

H1.2

H3 H4

H1.3

Managerial Ownership Proportion

H2 Figure 1 Characteristic of Good Corporate Governance (GCG) Note:: = simoultan influence = partial influence

Table 1 Description of Sample No. Code Name of Company FINANCE INPC Bank Artha Graha International Tbk 1 BBKP Bank Bukopin Tbk 2. BBCA Bank Central Asia Tbk 3. BCIC Bank Century Tbk 4. BDMN Bank Danamon Indonesia Tbk 5. LPBN Bank Lippo Tbk 6. BMRI Bank Mandiri (Persero) Tbk 7. BBNI Bank Negara Indonesia Tbk 8. BNGA Bank Niaga Tbk 9. PNBN Bank Pan Indonesia Tbk 10. BNLI Bank Permata Tbk 11. BBRI Bank Rakyat Indonesia (Persero) Tbk 12. BVIC Bank Victoria International Tbk 13. CFIN Clipan Finance Indonesia Tbk 14. KREN Kresna Graha Sekurindo Tbk 15. AMAG Asuransi Multi Artha Guna Tbk 16. MREI Maskapai Reasuransi Ind. Tbk 17. BHIT Bhakti Investama Tbk 18. LPPS Lippo Securities Tbk 19. TRADE, SERVICE AND INVESTMENT 20 AKRA AKR Corporindo Tbk 21. EPMT Enseval Putra Mega Trading Tbk 22. HEXA Hexindo Adiperkasa Tbk 23. INTA Intraco Penta Tbk 24. LTLS Lautan Luas Tbk 25. META Nusantara Infrastructure Tbk 26. UNTR United Tractors Tbk 27. ACES Ace Hardware Indonesia Tbk 28. CSAP Catur Sentosa Adiprana Tbk 29. MPPA Matahari Putra Prima Tbk 30. RALS Ramayani Lestari Sentosa Tbk 31. SHID Hotel Sahid Jaya Tbk 32. MAMI Mas Murni Indonesia Tbk 33. PANR Panorama Sentrawisata Tbk 34. PUDP Pudjiadi Prestige Limited Tbk 35. MNCN Media Nusantara Citra Tbk 36. ASGR Astra Graphia Tbk 37. MTDL Metrodata Electronics Tbk 38. BMTR Global Mediacom Tbk 39. LPLI Lippo E-NET Tbk 40. MITI Mitra Investindo Tbk 41. RAJA Rukun Raharja Tbk

1251

Date of publication 11 Sept 2008 2 Mei 2008 21 Oktober 2008 30 April 2008 24 Maret 2008 8 April 2008 20 Oktober 2008 21 Oktober 2008 10 April 2008 17 Sept 2008 15 April 2008 3 Sept 2008 28 Agustus 2008 8 Mei 2008 24 Juni 2008 24 Juni 2008 24 Juni 2008 11 Sept 2008 4 Maret 2008 26 Agustus 2008 24 Juni 2008 26 Juni 2008 20 Juni 2008 2 Sept 2008 26 Juni 2008 24 Sept 2008 14 Maret 2008 17 Juli 2008 6 Maret 2008 24 Juni 2008 17 Juli 2008 24 Juni 2008 3 Juni 2008 10 Juli 2008 9 April 2008 20 Juni 2008 26 Agustus 2008 9 April 2008 29 April 2008 23 Juni 2008 30 April 2008

Market Reaction

J. Basic. Appl. Sci. Res., 1(9)1250-1254, 2011

Corporate Social Responsibility (CSR) The objectives of financial reporting by Business Enterprises were not only full set finance report, but it was included too about non finance reports as follow: 1. Non finance information, it was included the information about the impact of social environment due to there was a company, and business prospect due to general economic condition. 2. Other finance information, it was included the prediction and expectation of finance, and active sources, duty, income, and cost or load of company. Good Corporate Governance (GCG) The five principlals as the base of Good Corporate Governance GOG) was as follow [3] 1. Transparancy 2. Accountability 3. Responsibility 4. Independency 5. Fairness Survey of CLSA showed that hundred of companies which share traded at emerging markets would give average return 127%, but the companies which had high score of corporate governance supported average return almost two times: 267% [4]. Relation between CSR Implementation and Investor Reaction Investors in modal market needed some information as analysis tool to make decision. The function of information at market security was [5]: 1. 2.

To help in security price which showed there was optimal allocation due to security inter investor. To help individual investor which interfaced with series of price related to select a optimal portofolio of security.

Model of analysis Formula of analysis was as follow: Z Y Y

= α + β1X1+ β2X2 + β3X3 + e ..................................................(1) = α + β1X1+ β2X2 + β3X3 + e ..................................................(2) = α + β4Z + e ...................... ....................................................(3)

Note : Z X1 X2 X3 α β1, ..., β4 e Y

= Corporate Social Responsibility Index = number of the board of commisioners = public ownership proportion = managerial ownership proportion = constant = coefficient of linier regression = Error = Unexpected trading volume

Corporate Social Responsibility Disclosure Index Implementation of CSRI could be approached by the formula as follow: CSRIj = Note: CSRIj nj Xij

.........................................................................(3)

= Corporate Social Responsibility Disclosure Index company j = number of item for company j, nj ≤ 78 = dummy variable; 1 = if item i was expressed, 0 = if item i was not expressed

0 ≤ CSRIj ≤ 1 [6]. Market reaction Volume of abnormal share trading that was as volume of proportional market was analysed with the formula as follow: [6]

1252

Agustia, 2011

Vat = PSit – PSmt ....................................................................................(4) Note, Vat PSit PSmt

= volume of abnormal trading = percentage of company share-I traded at period-j = percentage share traded in the whole market at period-t

Percentage of company share-I traded at period-t could be analysed with the formula as follow: [6] PSit = Sit : SBit ............................................................................................(5) Note Sit SBit

= company share-I traded in market at period-t = number of company share- I circulated at period-t

Percentage of the whole share traded at period-t could be analysed with the formula as follow: [6] PSmt = Smt : SBmt ......................................................................................(6) Note: Smt SBmt

= number of share traded in the whole market at period-t = number of share circulated in the whole market at period-t RESULTS AND DISCUSSION

Influence of number of the board of commissioners, public ownership proportion, managerial ownership proportion due to Corporate Social Responsibility Coefficient of determination was 0.220. It meaned that number of the board of commissioners, public ownership proportion, and managerial ownership proportion had contribution of 22.0% to the up and down of Corporate Social Responsibility Index. The rest of 78% was caused by the other factors. F test showed that the three items simoultantly influenced the CSR implementation. The value of t showed that: 1) number of the board of commissioners significantly influenced CSR implementation (value of t = 0.07); 2) public ownership proportion was not significantly influenced CSR implementation (value of t =0.932); and 3) managerial ownership proportion was not significantly influenced CSR implementation (value of t = 1.033). Influence of number of the board of commissioners, public ownership proportion, managerial ownership proportion due to Market Reaction Result of multiple linear regresions showed that coeffiecient of regression (X1) was 0.02059. It meaned that number of the board of commissioners was positive influenced to market reaction. More number of the board would increase more market reaction. Variable of X2 (public ownership proportion) had the coefficient of -0.142. It meaned that public ownership proportion had negative influenced to market reaction. More public ownership proportion would decrease market reaction. Variable of X3 (managerial ownership proportion) was 0.127 (positive influenced). It meaned that managerial ownership proportion was positive influenced to market reaction. More managerial ownership proportions would increase market reaction. Influence of CSR Implementation to Market Reaction Result of regression analysis showed that Corporate Social Responsibility Index (Z) had negative coefficient:: -1.872. It meaned that Corporate Social Responsibility Index was negative influenced to market reaction. More Corporate Social Responsibility Index would decrease market reaction. Influence of number of the board commissioners, public ownership proportion, managerial ownership proportion to market reaction through the implementation of Corporate Social Responsility Result of regression analysis showed that the usage of Z variable (Corporate Social Responsibility Index) was not relevant. A company which applied good corporate gobernance would produce higher benefit. Level of high management would produce higher benefit because there was less risk. Better corporate governance of a company would influence making finance report. Therefore the finance report would impact the investor. CONCLUSION 1. 2. 3.

Number of the board of commissioners, public ownership proportion, managerial ownership proportion was simoultantly influence CSR implementation. Number of the board of commissioners and managerial ownership proportion was positive influence the market reaction, but pulic ownership proportion was negative influence to market reaction. There was significant influence to market reaction for volume abnormal trading.

1253

J. Basic. Appl. Sci. Res., 1(9)1250-1254, 2011

4.

Influence of number of the board commissioners and public ownership proportion was higher than managerial ownership proportion due to the implementation of Corporate Socual Responsibility. REFERENCES

1.

Sayekti, Yosefa dan Ludovicus Sensi Wondabio. 2007. Pengaruh CSR Disclosure terhadap Earning Response Coefficient. Simposium Nasional Akuntansi X, Unhas Makassar, 26-28 Juli

2.

Wibisono, Yusuf. 2007. Membedah Konsep dan Aplikasi CSR: Corporate Social Responsibility. Gresik: Fascho Publishing

3.

KNKG. 2006. Pedoman Umum Good Corporate Governance

4.

Mardjana, I Ketut. 2000. Corporate Governance dan Privatisasi. Jurnal Reformasi Ekonomi, Vol. 2, No.2, Oktober-Desember

5.

Belkaoui, Ahmed Riahi. 1992. Accounting Theory. Thirth Edition. London: Academic Press Limited

6.

Sembiring, Eddy Rismanda. 2003. Kinerja Keuangan, Political Visibility, Ketergantungan pada Hutang dan Pengungkapan Tanggung Jawab Sosial Perusahaan. Simposium Nasional Akuntansi VI, Surabaya, 16-17 Oktober

1254